Greg Mankiw's Blog

Tuesday, April 29, 2014

An Interview with Piketty

Do more lectures improve student performance?

Yes, finds a new experimental study, but the authors interpret the effects as modest in size. One group of students in introductory microeconomics got a lecture twice a week (what the authors call the "traditional" format), and the other group of students got a lecture only once a week. All the students had the same access to online resources and the same wonderful textbook. (You can guess which one.) The results:

We find that students in the traditional format scored 2.3 percentage points more on a 100-point scale on the combined midterm and final. There were no differences between formats in non-cognitive effort (attendance, time spent with online materials) nor in withdrawal from the class.

Friday, April 25, 2014

First Thoughts on Piketty

I have been reading Thomas Piketty's "Capital in the 21st Century." It is truly an impressive work, and I am much enjoying it. I have recently organized a session at the upcoming AEA meeting (January in Boston), where David Weil, Alan Auerbach, and I will be discussing the book, followed by a response from Professor Piketty.

Let me offer a few immediate reactions.

The book has three main elements:

A history of inequality and wealth.

A forecast of how things will evolve over the next century

Policy recommendations, such as a global tax on wealth.

Point 1 is a significant contribution. I like this part of the book a lot.

Point 2 is highly conjectural. Economists are really bad at such things. In particular, the leap from r>g to the conclusion of a growing role of inheritance in society seems too large to me. Many capital owners consume much of the return on their capital, so wealth does not grow at rate r. This consumption ranges from fancy cars and luxurious vacations to generous charitable giving. In addition, unless mating is perfectly assortative, or we return to an era of primogeniture, wealth per family shrinks as it is split among children. So, from my perspective, Piketty tries to draw way too much from r>g. (Quick Quiz for econonerds: (a) What does r>g tell you in a standard overlapping generations model? (b) And what is the magnitude of bequests in that model? Answers below.*)

Point 3 is as much about Piketty’s personal political philosophy as it is about his economics. As we all know, you can’t get “ought” from “is.” Like President Obama and others on the left, Piketty wants to spread the wealth around. Another philosophical viewpoint is that it is the government’s job to enforce rules such as contracts and property rights and promote opportunity rather than to achieve a particular distribution of economic outcomes. No amount of economic history will tell you that John Rawls (and Thomas Piketty) offers a better political philosophy than Robert Nozick (and Milton Friedman).

The bottom line: You can appreciate his economic history without buying into his forecast. And even if you are convinced by his forecast, you don't have to buy into his normative conclusions.
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* Answers to quiz: (a) That the economy is dynamically efficient (that is, it has not over-accumulated capital). (b) Zero.

Report from the Chair

Readers of this blog may have noticed that I have not been as active here over the past two years as I was previously. One of the reasons is that, about two years ago, I was appointed chairman of the Harvard economics department. That has been keeping me busy. But I am happy to report that the job is going well. One of the responsibilities of the chair is to oversee faculty hiring, and we have had some great results. Our new faculty hires include the following (in alphabetical order):

Wednesday, April 23, 2014

Solow on Piketty

Sunday, April 20, 2014

Transitory Income and the One Percent

Thomas A. Hirschl of Cornell and I [Mark Rank of Wash U] looked at 44 years of longitudinal data regarding individuals from ages 25 to 60 to see what percentage of the American population would experience these different levels of affluence during their lives. The results were striking.

It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution....

It is clear that the image of a static 1 and 99 percent is largely incorrect. The majority of Americans will experience at least one year of affluence at some point during their working careers. (This is just as true at the bottom of the income distribution scale, where 54 percent of Americans will experience poverty or near poverty at least once between the ages of 25 and 60)....

Rather than talking about the 1 percent and the 99 percent as if they were forever fixed, it would make much more sense to talk about the fact that Americans are likely to be exposed to both prosperity and poverty during their lives, and to shape our policies accordingly. As such, we have much more in common with one another than we dare to realize.

Wednesday, April 16, 2014

Sometimes it's better to split the baby

This story about the Census Bureau is amazing to me: The Census is changing its annual survey about health insurance. As a result, the new data will not be comparable to the old, making it much harder to gauge the effects of the Affordable Care Act.

Is this a White House conspiracy to hide the effects of the law, as some have suggested? Maybe, but probably not. I have a lot of respect for the government data producers, so I am giving them the benefit of the doubt.

Yet I don't see why the Bureau needs to make such a sudden change. Why not, for a few years, give half the sample the old questionnaire and half the new one? This procedure would provide a basis for eventually splicing together the old and new time series.

How to Give an Applied Micro Talk

Friday, April 11, 2014

Next time you hear someone advocate for single-payer healthcare, remember this

Two Florida doctors who received the nation’s highest Medicare reimbursements in 2012 are both major contributors to Democratic Party causes, and they have turned to the political system in recent years to defend themselves against suspicions that they may have submitted fraudulent or excessive charges to the federal government....

Topping the list is Dr. Salomon E. Melgen, 59, an ophthalmologist from North Palm Beach, Fla., who received $21 million in Medicare reimbursements in 2012 alone....

Dr. Melgen’s firm donated more than $700,000 to Majority PAC, a super PAC run by former aides to the Senate majority leader, Harry Reid, Democrat of Nevada. The super PAC then spent $600,000 to help re-elect Senator Robert Menendez, Democrat of New Jersey, who is a close friend of Dr. Melgen’s. Last year, Mr. Menendez himself became a target of investigation after the senator intervened on behalf of Dr. Melgen with federal officials and took flights on his private jet.

Wednesday, April 09, 2014

Sentence of the Day

For Deacon Patrick Moynihan, Head of LCS [Louverture Cleary School], the importance of teaching economics in Haiti is clear, “After theology—economics is the most important science to study because the two things that impact everyone are God and the market.”

Monday, April 07, 2014

Teaching the Liquidity Trap

Users of my favorite intermediate macro textbook will be familiar with the dynamic model of aggregate demand and aggregate supply, which I first put into the book in the 7th edition. That new chapter shows the student how to incorporate a standard Taylor rule into business-cycle theory, as well as how to trace the dynamic response of the economy to various shocks. Instructors who teach that chapter might be interested in this new paper, which shows how to incorporate the zero lower bound into the model.

Barack Obama and Jeb Bush on Immigration

Immigration reform remains one of the great challenges facing our nation, and unfortunately, the policies of the current president fail to match his rhetoric. In today's NY Times:

With the Obama administration deporting illegal immigrants at a record pace, the president has said the government is going after “criminals, gang bangers, people who are hurting the community, not after students, not after folks who are here just because they’re trying to figure out how to feed their families.”

But a New York Times analysis of internal government records shows that since President Obama took office, two-thirds of the nearly two million deportation cases involve people who had committed minor infractions, including traffic violations, or had no criminal record at all. Twenty percent — or about 394,000 — of the cases involved people convicted of serious crimes, including drug-related offenses, the records show....

Mr. Obama came to office promising comprehensive immigration reform, but lacking sufficient support, the administration took steps it portrayed as narrowing the focus of enforcement efforts on serious criminals. Yet the records show that the enforcement net actually grew, picking up more and more immigrants with minor or no criminal records.

Former Florida Gov. Jeb Bush said Sunday that he would make up his mind this year on whether to run for president, and waded into the immigration debate by describing the actions of many who come to the U.S. illegally as an "act of love."...

"Someone who comes to our country because they couldn't come legally…yes, they broke the law but it's not a felony. It's an act of love. It's an act of commitment to your family. I honestly think that that is a different kind of crime," he said.

Tuesday, April 01, 2014

Sweet Home Alabama

Over the next few days, I will be visiting a couple colleges in Alabama. If you happen to be in the area, you might be interested to know that I am giving a public lecture at Troy University on April 3. You can find information about it here.

Announcement

As chairman of the Harvard economics department, I am delighted to announce the merger of the Harvard and MIT economics departments. After consulting with the department chairs, the Presidents of Harvard and MIT have concluded that the synergies were too great for the departments to operate separately, only two miles apart, as we have for many years. As a result, a new building is to be built at 950 Mass Ave, between the schools and near the NBER, that will house both departments as a new single entity. The faculty will teach courses open to undergraduates at both schools. The PhD programs will be completely merged to create a single, unified program. This development is considered a pilot project, which, if successful, could lead to a complete merger of Harvard and MIT in the future.

About Me

I am the Robert M. Beren Professor of Economics at Harvard University, where I teach introductory economics (ec 10). I use this blog to keep in touch with my current and former students. Teachers and students at other schools, as well as others interested in economic issues, are welcome to use this resource.